Simplified Option for Claiming Home Office Deduction - Revenue Procedure 2013-13

[taxea]

Mortgage interest is already deductible on Sch A? I realize in rare cases a TP may take OIH and not itemize, but that's few and far between.

Why would you take the full mortgage interest on Sch A where it gets slashed rather taking the allowed amount on Sch C F8829 where it is dollar for dollar?

[Burke]

And what about the itemizer who takes the $ 1,500 flat OIH deduction?
Claiming a mortgage interest and/or real estate tax a second time will be permitted?

Good question. I gather from the RevProc that they are saying M/I & R/E/T & C/L will go to Sche A, and other bus exp will go on 8829-EZ or whatever the new form is? But no depreciation if you use the new one. Kind of like auto exp: mileage vs actual exp.

[JoshinNC]

Why does mortgage interest play into it all?

Are they kidding ..... in Hawaii the mortgage interest by percentage of office use would be way more than 1500.

Mortgage interest is already deductible on Sch A? I realize in rare cases a TP may take OIH and not itemize, but that's few and far between.

[taxea]

Are they kidding ..... in Hawaii the mortgage interest by percentage of office use would be way more than 1500.

[Uncle Sam]

Form 8829-EZ

And what about the itemizer who takes the $ 1,500 flat OIH deduction?
Claiming a mortgage interest and/or real estate tax a second time will be permitted?

[FEDUKE404]

Observations

1 - Great. Another version of a form which already in the present form can result in much hair-pulling (and client charges).

2 - Did you note the $1,500 limitation? That is not a large annual amount for someone with legitimate OIH expenses, especially when OIH has to deal with mortgage interest, property taxes, costly utilities, etc.

3 - It sounds as if the procedure will be a) meet the rules, b) measure square feet of OIH space, c) multiply by $5, d) claim lesser of $1500 or calculated amount.

4 - Person who does not itemize will likely get less benefit with the new form. Assuming Schedule C is involved, there likely will be more net business income subject to taxation and also higher SE tax.


Note to self: I will worry about that next year!!

FE

[Uncle Sam]

Form 8829-EZ

Why doesn't the IRS just rename the form?

MY next question is whether the $ 5/sq foot has to use the hi-lo method for determining the local rate?

[Jesse]

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year

WASHINGTON — The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller. "The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013."

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.
Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.
Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted today on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after January 1, 2013, and the IRS welcomes public comment on this new option to improve it for tax year 2014 and later years. There are three ways to submit comments.